TBG DISCONTINUED OPERATIONS:

In October 2017, the Company sold substantially all its mall-based salon business in North America, representing 858 salons, and substantially all its International segment, representing approximately 250 salons in the UK, to The Beautiful Group ("TBG"), an affiliate of Regent, a private equity firm based in Los Angeles, California, who operates these locations as franchise locations.

For the International segment, the Company entered into a share purchase agreement with TBG for minimal consideration.

The Company classified the results of its mall-based business and its International segment as discontinued operations for all periods presented in the Condensed Consolidated Statement of Operations. In connection with the sale of the mall-based business and the International segment, the Company performed an impairment assessment of the asset groups. The Company recognized net impairment charges within discontinued operations based on the difference between the expected sale prices and the carrying value of the asset groups.

The following summarizes the results of our TBG discontinued operations for the periods presented:



	For the Three Months Ended March 31,						For the Nine Months Ended March 31,
	2019			2018			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Revenue	$	—		$	—		$	—		$	101,140

Income (loss) from TBG discontinued operations, before income taxes	224			(13,545		)	(862		)	(57,385		)
Income tax (expense) benefit on TBG discontinued operations	(46		)	2,940			6,889			6,412
Income (loss) from TBG discontinued operations, net of income taxes	$	178		$	(10,605	)	$	6,027		$	(50,973	)

For the three months ended March 31, 2019, the $0.2 million income from discontinued operations includes actuarial insurance accrual adjustments associated with the transaction. For the nine months ended March 31, 2019, the $6.0 million income from discontinued operations includes $6.9 million of income tax benefits associated with the wind-down and transfer of legal entities related to discontinued operations and $0.2 million of actuarial insurance accrual adjustments associated with the transaction, partly offset by $1.0 million of professional fees.

For the three months ended March 31, 2018, included within the $10.6 million loss from discontinued operations were $11.7 million of asset impairment charges, $1.2 million of loss from operations and $0.6 million of professional fees associated with the transaction, partly offset by a $2.9 million income tax benefit. For the nine months ended March 31, 2018, included within the $51.0 million loss from discontinued operations were $40.8 million of asset impairment charges, $6.2 million of cumulative foreign currency translation adjustment associated with the Company's liquidation of substantially all foreign entities with British pound denominated currencies, $4.0 million of loss from operations and $6.4 million of professional fees associated with the transaction, partly offset by a $6.4 million income tax benefit.

As part of the sale of the mall-based business, TBG agreed to pay for the value of certain inventory, prepaid rent and assumed specific liabilities, including lease liabilities. In March 2018, the Company entered into discussions with TBG regarding a waiver of working capital and prepaid rent payments associated with the original transaction and the financing of certain receivables to assist TBG with its cash flow and operational needs. Based on those discussions as of March 31, 2018, the Company fully reserved for the working capital and prepaid rent amount of $11.7 million which was recorded in discontinued operations in the Condensed Consolidated Statement of Operations in the third quarter of fiscal year 2018. In August 2018, the Company entered into promissory notes for approximately $11.7 million in working capital receivables and $8.0 million in accounts receivables, a majority of which was for inventory purchases. All notes have a maturity date of August 2, 2020. Pursuant to the working capital notes, such notes would be forgiven as of the maturity date and exchanged for a three-year contingent payment right that is payable upon the occurrence of certain TBG monetization events if no default had occurred under such notes and certain other conditions are met. Based on TBG’s inability to meet the requirements of the promissory notes, including non-payment of amounts due to the Company, the Company recorded a full reserve against such notes. In addition, the Company has recorded additional reserves of approximately $11.6 million for inventory and $1.1 million for outstanding royalties that TBG has failed to pay. As of March 31, 2019, the Company has fully reserved for all amounts invoiced to TBG. The total note and receivables reserve in the third quarter of fiscal year 2019 was $20.7 million and is recorded in the TBG mall location restructuring line of the unaudited Condensed Consolidated Statement of Operations. TBG's business has continued to decline. The Company continues to have conversations with TBG focused on how to assist TBG with its cash flow and operational needs.

The following summarizes the TBG related charges for the periods presented:



	For the Three Months Ended March 31,						For the Nine Months Ended March 31,						Income Statement Classification
	2019			2018			2019			2018
	(Dollars in thousands)
TBG mall location restructuring	$	20,711		$	—		$	20,711		$	—		TBG mall location restructuring

Working capital and prepaid rent receivable reserve	—			(11,697		)	—			(11,697		)	Income (loss) from TBG discontinued operations
Other charges	224			(1,848		)	(862		)	(45,688		)	Income (loss) from TBG discontinued operations
Income (loss) from TBG discontinued operations, before income taxes	224			(13,545		)	(862		)	(57,385		)	Income (loss) from TBG discontinued operations
Income tax (expense) benefit on TBG discontinued operations	(46		)	2,940			6,889			6,412			Income (loss) from TBG discontinued operations
Income (loss) from TBG discontinued operations, net of income taxes	$	178		$	(10,605	)	$	6,027		$	(50,973	)	Income (loss) from TBG discontinued operations

Other than the items presented in the Consolidated Statement of Cash Flows, there were no other significant non-cash operating activities or any significant non-cash investing activities related to discontinued operations for the three and nine months ended March 31, 2019 and 2018.

The Company utilized the consolidation of variable interest entities guidance to determine whether or not TBG was a variable interest entity (VIE), and if so, whether the Company was the primary beneficiary of TBG. As of March 31, 2019, the Company concluded that TBG is a VIE, based on the fact that the equity investment at risk in TBG is not sufficient. The Company determined that it is not the primary beneficiary of TBG based on its exposure to the expected losses of TBG and as it is not the variable interest holder that is most closely associated within the relationship and the significance of the activities of TBG. The exposure to loss related to the Company's involvement with TBG is the guarantee of the operating leases for certain TBG operated salons. As of March 31, 2019, prior to any mitigation efforts which may be available, the Company remains liable for up to $64.8 million associated with remaining TBG salon lease commitments, should TBG not perform.